There has been a downward trend in the number of independent financial advice firms since 2008 for a number of reasons, including an increasingly complex regulatory environment and a lack of new entrants to the business.
New regulations, including the introduction of GDPR, is putting pressure on resources which are already stretched. This, coupled with an ageing workforce (the average age of an advisor is now 50) and according to a recent article in FT Adviser which suggests that one in five will leave the industry in the next five years, has left small firms contemplating their next steps.
For some small business owners, consolidation is a sensible option, as it offers security to the company’s clients. It is also a seller’s market, with IFAs beginning to realise their value to large takeover firms. There is a large amount of capital in the market, from successful listings on the stock exchange and private equity firms, and this means business owners have greater flexibility in negotiation.
Financially, consolidation can make sense. But although we’re in the business of money, that’s not all it comes down to.
Clients are at the heart of every business, even more so in smaller firms, and business owners want to make sure their clients will be looked after when they decide to take a step back. For the most part, small IFAs rely on longstanding client relationships and subsequent referrals to grow their businesses, with some relationships decades in the making.
This can be a sticking point for many business owners – there may be a number of potential buyers, but they tend to be large and less likely to deliver a bespoke service.
Put simply, larger firms don’t have the resource or time to look after clients in the way small independents do. Of course, all wealth management firms are held to high standards by the regulators, meaning services are consistent and responsible, but they might not be so closely in tune with clients’ needs.
Company culture varies greatly between large and small firms too – small firms may spend more time with individual clients, but large firms have greater tools at their disposal. It’s a careful balance business owners need to strike when considering a takeover.
The current acquisition space is largely dominated by large consolidators, yet the majority of independent financial advisory businesses are small.
This is where we’d like to help. Although we’re growing and ambitious, we’re still a family business, and understand the needs of other independents inside out. We want to help individuals and businesses when it comes to making these important decisions, providing an alternative to large consolidator firms.
When it comes to acquisition, it shouldn’t be a case of big versus small; David and Goliath, but rather one of making the right choices for you and your firm.
Contact us if you’d like to talk to us about any of the above.